1. In this case, the Andhra Pradesh Welfare Fund, Eluru, had filed a "nil" return declaring its status as a registered body. The ITO, Eluru, pointed out that there was no status of a registered body under the I.T. Act. The assessee was asked to give its correct status. The assessee filed a reply stating that it was a branch of the Andhra Pradesh Welfare Fund, Hyderabad, and it was not liable to pay income-tax for the relevant assessment years 1971-72 and 1972-73. It was also stated that the Andhra Pradesh Welfare Fund was granted an exemption certificate under s. 88 of the i.t. act by the Commissioner of Income-tax and the assessee, being only a branch of the parent body, was also entitled to such exemption. The ITO held that the assessee was not a branch of the Andhra Pradesh Welfare Fund. He also held that the assessee could not rely upon s. 12 of the i.t. act as the contributions received by the fund were not voluntary, and, secondly, they were not wholly for religious or charitable purposes. He, therefore, negatived the claim for exemption and fixed the taxable income at Rs. 5,03,080 for the assessment year 1971-72 and at Rs. 7,91,770 for the assessment year 1972-73. On appeal, however, the contention of the assessee was accepted by the AAC, who allowed the appeals. The Department, being aggrieved, preferred appeals to the Income-tax Appellate Tribunal, Hyderabad. The Tribunal held that the assessee had a separate juristic personality of its own, and it was not a branch of the Andhra Pradesh Welfare Fund, Hyderabad. It, however, differed from the AAC on the question of the voluntary nature of the contributions and held that the contributions were voluntary, and that the contributions were not wholly for charitable purposes. The appeals preferred by the Department were, therefore, allowed. The Tribunal, however, felt that the following questions of law arose from its order and referred the same for the opinion of this court :
"(1) Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the assessee is not a branch of the Andhra Pradesh Welfare Fund, Hyderabad ?
(2) Whether, on the facts and circumstances of the case, the assessee is not entitled to claim exemption under section 12 of the Income-tax Act as a trust ?"
2. Before dealing with these questions, it is necessary to state a few facts as found by the Tribunal. Under the bye-laws of the Andhra Pradesh Welfare Fund, Hyderabad, each district was to collect funds and keep them in the district and spend the amount within the district provided, however, the district committee would have power to sanction expenditure exceeding Rs. 500. It was also provided that 5% of the collections made by the Fund in the district should be paid over to the Andhra Pradesh Welfare Fund, Hyderabad. It was found as a fact that these two conditions were not satisfied and the entire amounts so collected in the district were kept by the Andhra Pradesh Welfare Fund, Eluru. However, the Andhra Pradesh Welfare Fund, Eluru, was registered separately under the Societies' Registration Act as a separate body. It was, therefore, clear from these facts that it cannot be considered as a branch of the Andhra Pradesh Welfare Fund, Hyderabad, or forms part of the parent organisation. It was, however, sought to be argued that the Andhra Pradesh Welfare Fund, Hyderabad, was regarding this as a branch as can be seen from the letters issued by the secretary of the Andhra Pradesh Welfare Fund, Hyderabad, stating that the Andhra Pradesh Welfare Fund at Eluru is a branch of the former. If, in fact, there is no connection between the two bodies and the body at Eluru is not functioning according to the bye-laws as a branch, the mere fact that the secretary, in a communication, stated that it is regarded as a branch is of no consequence. The Tribunal, therefore, was right in holding that it cannot be regarded as a branch or as a part of the Andhra Pradesh Welfare Fund, Hyderabad. We do not see any question of law arising on this aspect.
3. The second question, which is the main question that falls for consideration, is whether the conditions of s. 12 of the i.t. act are fulfilled. As far as the first condition is concerned, the Tribunal has found as a fact that the contributions are voluntary though the ITO took a different view on the ground that the contributions were made by rice millers who expected something in return from the chairman of the Welfare Fund who is the Collector of the District. Apart from the fact that that question is not before us, we have no hesitation in holding that the Tribunal was right in coming to the conclusion that the mere fact that the rice millers paid contributions with an oblique motive would not affect the character of the contributions as voluntary contributions.
4. The next question is whether all these contributions were received wholly for charitable or religious purposes by the institution concerned. The Tribunal again found, after considering all the facts of the case, that all the contributions were not being used for charitable and religious purposes. In the order it is stated that a large amount of Rs. 31,000 was spent for the internal telephone system of the Collector's office and the Zilla Parishad office; that a sum of Rs. 3,900 was spent for fans to public office; and another sum of Rs. 2,775 was given to the marketing federation. These amounts so spent have nothing to do with the objects and purposes of the welfare fund and cannot by any term be regarded as for charitable or religious purposes. As pointed out by the Tribunal, the internal telephone system was installed to suit the convenience of the District Collector, who happened to be the ex-officio Chairman of the Fund. The Tribunal further pointed out that these instances are only illustrative and not exhaustive of the manner in which the contributions have been diverted. Having regard to the fact that some of the funds were being utilised for purposes other than charitable and religious, the Tribunal came to the conclusion that it cannot be said that the funds were utilised wholly for charitable and religious purposes. In the circumstances, the Tribunal held that they were not entitled to exemption as a trust. This is also a question of fact, and we see no question of law involved.
5. It is not clear to us as to how the Tribunal itself considered that questions of law arose in this case and referred the matter to this court. We, therefore, answer the two questions referred to us in favour of the Revenue. There will be no order as to costs.
6. The learned Advocate-General who appeared for the petitioners drew our attention to the fact that the case is governed by s. 12 of the Act before its amendment which came into effect on April 1, 1973. Before amendment, that section stated as follows :
"12. Income of trusts or institutions from voluntary contributions. -
(1) Any income of a trust for charitable or religious purposes or of a charitable or religious institution derived from voluntary contributions and applicable solely to charitable or religious purposes shall not be included in the total income of the trustees or the institution, as the case may be.
(2) Notwithstanding anything contained in sub-section (1), where any such contributions as are referred to in sub-section (1) are made to a trust or a charitable or religious institution by a trust or a charitable or religious institution to which the provisions of section 11 apply, such contributions shall, in the hands of the trust or institution receiving the contributions, be deemed to be income derived from property for the purposes of that section and the provisions of that section shall apply accordingly."
7. He submitted that, under the terms of this section, all voluntary contributions are unconditionally exempt from tax as they do not constitute income at all but a capital receipt. This contention was not raised before any of the Tribunals below and is not a matter referred to us for our opinion and hence it is strictly unnecessary for us to deal with this contention. We may, however, in passing refer to Sri Dwarkadheesh Charitable Trust v. ITO , wherein the learned judges dealt with a similar argument and observed as follows :
"For the Revenue it was urged that
section 12(1) of the Act, when it refers to 'any income derived from voluntary contributions' refers to income earned from property which was the subject-matter of the voluntary contribution, and not to that property itself. Now, voluntary contributions to be of any use to section 11 or 12 of the Act must have money value; they will either be of money or money's worth in the shape of shares, securities, movable or immovable properties. If the legislative intent was to exempt income earned from property received by a trust in the form of voluntary contributions, there was no point in enacting
section 12(1), because income from such property held by a trust would be income from property held under trust within the meaning of section 11 and would be liable to be dealt with thereunder. Income from property held under trust is exempt under section 11(1) only to the extent to which it is applied for charitable or religious purposes, except to the limited extent to which accumulation is permitted by that section. Reading
section 12(1) to deal with same kind of income, namely, income from property held under trust, would nullify the conditions and limitations placed by section 11, because under
section 12(1) such income is unconditionally exempt from being included in the total income. This will create an impasse in the working of the Act. A construction which creates serious difficulties and anomalies in the working of inter-linked provisions of a statute is to be avoided."
8. This is an unfortunate case where a public welfare fund, which has been constituted for the purpose of utilising the funds collected for the welfare of the people in different spheres, has been made to pay tax on the voluntary contributions received by it because the persons concerned with the administration of the fund utilised a small part of the fund for extraneous purposes not connected with the objects and purposes of the fund. The result is that not only that small portion of the fund which was utilised for such purposes out of contributions but the entire contributions received by the fund became taxable in the hands of the fund and the fund has been assessed to tax on an income of Rs. 5,03,380 for the assessment year 1971-72 and on Rs. 7,91,770 for the assessment year 1972-73. If only the voluntary contributions had been utilised strictly for charitable purposes for which they were intended, the welfare fund would not have been liable to pay any tax. By reason of the misapplication of a portion of the fund, a heavy tax liability has been imposed upon the fund. We hope and trust that, in future at least, care is taken to see that the contributions to the fund are strictly applied for the purposes for which they are intended and the fund is not put to the necessity of paying any tax on such contributions.